DEVELOPMENT OF THE SECONDARY MARKET IN BRAZIL AND REVERSE LOGISTICS OPERATIONS

As is known, within the context of reverse logistics operations, in addition to collection and transportation activities, the destination of products is an important part of the return cycle.

There are several alternatives for disposing of items, including: outlets, auctions, intermediaries, R$ 1,99 stores, multi-brands, flea markets, pawnshops, remanufacturing/renovations and recycling.

This article aims to provide an overview of the secondary market in Brazil, comparing it with the USA, considering that this topic has increasingly become relevant for companies operating in the country.

REVERSE LOGISTIC

The drivers for reverse logistics are directly linked to competitive and legal reasons for companies. This is because building an efficient reverse chain leads to brand protection, cost reduction, increased revenue and consumer loyalty.

However, before starting a reverse logistics operation, the company must consider the management and control challenges, as it is an operation with a greater degree of complexity than traditional logistics, as shown in Figure 1.

Figure 1 – Differences between traditional logistics and reverse logistics

In addition to the challenges presented in Figure 1, the reverse logistics chain must be more efficient in time and cost than the traditional one, to reduce the loss of value of products throughout the chain.

Due to the high complexity of the reverse operation, it is necessary to map how the business strategy is aligned with the main drivers of reverse logistics — position in the life cycle, quality, price, size, market strategy and possible destinations.

POSITION IN THE LIFE CYCLE

The origin of reverse logistics is linked to the position occupied by the product in the life cycle, as seen in Figure 2.

Figure 2 – Position in the life cycle and the origins of reverse logistics

Price

Companies that work with high-value-added products generally prefer to direct leftover inventory to secondary sales channels, such as outlets or multi-brands, in order to recover as much value as possible. This is because placing very low promotional prices to liquidate an item not sold in the store itself can cannibalize the sale of new products or reduce the customer's perceived value of the brand.

On the other hand, in companies where there is a significant volume of products with low added value, it may be a good alternative to reduce prices in the store itself, thus avoiding reverse logistics costs.

Market strategy
In general terms, return volumes are proportional to sales volumes or, better yet, to intended sales volumes. In that
context, the larger these volumes, the more relevant the organization of reverse logistics operations.

Thus, as companies grow, the absolute amounts spent on the reverse operation will be greater and the more complex it will be.
to be the management of this operation. What was previously a small volume now becomes a volume that would make it possible to open a store, for example.

Increasingly, Brazilian companies reach this point of discussion: How to deal with returns? Which destinations are most interesting for the business?

Possible destinations

Regardless of their position in the life cycle, all items moved in the reverse logistics process go through the stages of collection, sorting/value addition and destination. The destination chosen for the different return origins is defined based on
different motivators. In other words, each company, depending on the perceived impact of its returns on the business, can make different decisions regarding its reverse operation.

Figure 3 – Destination of products in the reverse chain

SECONDARY MARKET

One of the possible forms of destination is the secondary market, which is made up of secondary channels, that is, a set of alternative sales channels for directing returns/surplus, in order to minimize the cannibalization of sales in the company's primary channels. and to enable maximum value recovery of returned items.

These secondary channels for selling products/inventory can be outlets, auction and online shopping sites, intermediaries,
jas from RS 1,99, multi-brands, flea markets, pawnshops, charities, remanufacturing/refurbishments and recycling, among others that work with the sale of items from past seasons, used in good condition or defective.

COMPARISON OF THE SECONDARY MARKET – BRAZIL VERSUS USA

Reverse logistics in the United States began to be more structured in the 1980s. At that time, the formation of large logistics operators focused on this type of operation, such as Genco, began, as well as outlets emerging as an important secondary channel. It is worth mentioning that the American economy in that decade, in terms of GDP, is similar to the current Brazilian economy, as shown in Figure 4.

Figure 4 – GDP Comparison – Brazil, USA and European Union

Reaching this level of sales volume indicates that Brazil is entering an economic moment in which discussions and directions regarding reverse logistics will have more relevance within companies operating in the country.

Regarding the direction of return volumes, according to research carried out in the USA by professor Dale Rogers, from Rutgers University, in New Jersey, and in Brazil – in research carried out by ILOS –, the representation of the secondary market in the USA it is around 2,6% of GDP, whereas here it is still around 0,3% of GDP.

Figure 5 illustrates the representation of secondary channels in the USA and Brazil, excluding remanufacturing/refurbishment, recycling,
cladding and final disposition.

Figure 5 – Representation of secondary channels in the USA and Brazil

Intermediaries

It is noted that the participation of “intermediaries” in the Brazilian secondary market is still very small. Intermediaries are companies that buy from industry and/or retail in large quantities and, after sorting, resell the products to other secondary channels. This simplifies the operation for industry and retailers, who sell the entire volume to a single company, quickly clearing the primary channel and freeing up space in distribution centers.

An alternative to using intermediaries is to organize the product sorting and routing process internally, through logistics operators or own resources. This alternative increases the value recovered by the company, given that the products are directed directly.

Auctions

A very relevant channel in the Brazilian secondary market is the auction. Traditionally, these are sites where companies put items on sale for a minimum price and then receive bids for the products. Currently, negotiations based on fixed prices are growing faster than those based on variable prices (bids), already disqualifying the title of “auction”.

In Brazil, the largest website of this modality is Mercado Livre, whose annual revenue reaches US$ 1,9 billion. In addition to C2C (i.e., the market between end consumers), several companies use Mercado Livre as a secondary channel and sometimes even as a primary channel. In it, already depreciated assets and, in many cases, products with minor defects or from previous seasons are sold.

Multibrand

Regarding the use of multi-brand tableware in the secondary market, the USA has small stores and large chains that sell clothing and home accessories, mostly from old collections for renowned brands, such as Dior, Jean Paul Gaultier and Armani. , among others.

As an example of large chains, the 3 stores in the TJX Companies group had revenues of around US$2012 billion in 26. To maintain the link with the Brazilian context, it is worth highlighting that TJMaxx, the group's first store, emerged in the 1970s, a time when the volume sold in the USA was close to the current Brazilian volume.

In Brazil, there are mostly small multi-brand stores and the beginning of the participation of large players operating online, such as Privalia and Westwing. Many brands still use multi-brand dishes almost exclusively as a primary channel to access consumers in small towns, where it would not be worth maintaining their own store.

Outlets

Another very common secondary channel in the USA for clothing items are outlet malls, which are shopping centers whose stores focus on selling old collections (up to two collections ago). In this case, unlike multi-brand environments, the outlet generally has exclusive stores per brand. The USA has more than 0 outlet malls, while in Brazil we currently have around five.

According to the large shopping center groups installed in Brazil, there is a forecast of 100% growth in the number of outlets in the country over the next five years.

pledge
While in the United States it is possible to pawn any type of item and there are several stores authorized to carry out the procedure, in Brazil, only Caixa Econômica Federal is authorized to carry out pawning operations, in addition to accepting only jewelry or high-quality items.
value. This explains why the pledge is a consolidated channel in the USA and in Brazil its relevance is small.

CONCLUSIONS
In Brazil, the secondary market is at the beginning of its development, with a growth trend in the coming years, comparable to the American context of the 1980s.

Due to the increase in sales volumes, the representation of returns/leftovers should increase, generating the need for greater organization and effort in reverse logistics operations. This market requires high-performance logistics in terms of cost and time, to ensure greater recovery of product value and profitability along the reverse chain.

With the growth of reverse operations, a stronger challenge begins to exist and encourage the secondary market: the need for alternatives for directing returns/surplus, in order to recover as much value as possible, without cannibalizing primary channels.

Within this market, the development of several channels can be noted, with auctions and outlets being those with the greatest growth potential. Multi-brand chains, especially online ones, also demonstrate potential for growth in the country. But its evolution depends on the development of good intermediaries, which do not currently exist in Brazil.

In general terms, one can imagine the development of the Brazilian secondary market in line with the American history, which brings great challenges and opportunities for professionals and companies involved with the topic.

BIBLIOGRAPHY

Secondary Market: Challenges and Opportunities. Mega Session presented at the XVIII International Supply Chain Forum, ILOS, 2013

Research on the Secondary Market in Brazil. ILOS, 2013

http://www.marshallsonline.com/, Março, 2014

http://tjmaxx.tjx.com, Março, 2014